Restructure Loan Repayment

The cost for a higher education is currently considered to be among one of the fastest-rising costs in America today. In the past 10 to 15 years, the price of college tuition has skyrocketed while median income has dropped. It is difficult for families to pay for their student’s education without taking out expensive loans that may follow the student, and the family, for many years after graduation. According to politicians such as President Obama and Hillary Clinton, to fix and address the student loan debt crisis we need to restructure the way we pay for college and the way student loans are repaid. Some of the ideas for restructuring college financing are based on a few basic principles:

Cap monthly loan repayments at 10 percent of discretionary income;

Forgive debt after 20 years;

Make income-based repayment automatic;

Eliminate tuition at community colleges and encourage students to take advantage of this by emphasizing a junior transfer program.

President Obama is actively pursuing solutions to solve the issue of student indebtedness. “We’re still seeing too big a debt load on too many young people, . . . the outrage here is that they’re just doing what they’ve been told they’re supposed to do. I can’t tell you how many letters I get from people who say, ‘I did everything I was supposed to and now I’m finding myself in a situation where I’ve got debts I can’t pay off . . . ,’ ” Obama stated in a speech in June 2014. He went on to sign an Executive Order expanding on the the 2012 Pay as You Earn (PAYE) program. According to Inside Higher Ed, this executive action will allow all federal loan borrowers, regardless of when they borrowed, to cap their monthly loan payments at 10 percent of their discretionary income and to have any remaining loan debt forgiven after 20 years.

We should cap the monthly payments on students’ loans, so students whose passion is teaching or policing or national service can pursue their dreams without worrying about debt or default … make income-based repayment automatic, then let students opt out if they want to.

Although Obama had a full ride to Occidental for his freshman year of college, he took out loans to pay for his sophomore year tuition at Occidental and his last two years at Columbia. He took out $42,753 more in loans to pay for Harvard Law School; and Michelle Obama withdrew $40,762 more to pay for law school at Harvard. They carried their accumulated college debt for 25 years. And were finally able to pay it off when Obama signed a $1.9 million book deal. Obama said, “I was in my 40s when we finished paying off our debt. . . . we should have been saving for Malia and Sasha by that time.”

Obama wants to make America have the highest proportion of college graduates in the world again. In 1990, the U.S. ranked first in the world in completing a four-year degree among 25-34 year olds. Today, the U.S. ranks 12th. In the last State of the Union speech of his presidency, Obama said,

First, how do we give everyone a fair shot at opportunity and security in this new economy? . . . We agree that real opportunity requires every American to get the education and training they need to land a good-paying job. . . . [W]e have to make college affordable for every American. Because no hardworking student should be stuck in the red. We’ve already reduced student loan payments to 10 percent of a borrower’s income. Now, we’ve actually got to cut the cost of college. Providing two years of community college at no cost for every responsible student is one of the best ways to do that, and I’m going to keep fighting to get that started this year.

Hillary Clinton’s “New College Compact” is her plan to make community college free and allow students to attend four-year public colleges without needing to borrow money to pay for it. She would get $350 billion by cutting tax deductions for the wealthiest Americans. While this could be a ploy to win younger voters, she does seem to understand the crisis. Recently she tweeted, “How does your student loan debt make you feel? Tell us in three emojis or less.”

Unlike fellow contender for the Democratic nomination Bernie Sanders, Clinton believes that families that can pay for tuition should pay what they can. Clinton’s goal is to enable students to graduate with no debt. Not to make public higher education completely free.

Sanders wants to follow the example of other countries that have free college tuition, “For a token fee of about $200 per year, an American can earn a degree in math or engineering from one of the premier universities in Europe. Governments in these countries understand what an important investment they are making, not just in the individuals who are able to acquire knowledge and skills but for the societies these students will serve as teachers, architects, scientists, entrepreneurs and more.” Unfortunately, colleges in Germany and colleges in America are two different animals; the “college experience” is vastly different in Germany than it is in America. German colleges do not have climbing walls or sports facilities and most students still live at home. Although those things are what gives American colleges their huge price tag, they are also why people say college is the best time of your life. Germany does not have the same stigma that American does that if you don’t go to college you will fail at life. Actually, America has a higher enrollment and graduation rate than Germany. On the other hand, Germany has a vocational education system in place for those who aren’t interested in college, a program not found in the U.S.

The charts above outline various aspects of the student debt crisis, including total student debt versus credit card debt, rising annual college costs, the rate of growth of student debt, the type of tuition support offered by the government and the financial toll of student debt.

Student loan debt has soared from $260 billion in 2004 to $1.2 trillion in 2014. (Watch America’s student-loan debt grow every second here.)

Because a higher education is still considered a high commodity in our society, people largely base their decision go to college on the hopes it will lead them to a successful work life. The financial return on their investment in a college is certainly a consideration: What salary can I expect when I graduate? Although it remains true that the starting salary is higher for college graduates and they can expect to make about $800,000 more over their lifetime than those who didn’t get a degree, there is no guarantee this will bear out. A college education remains essential to economic mobility so in some ways it is “good debt,” that is, if you get a diploma and a job. College dropouts have a harder time finding high-paying jobs and are less likely to pay back their student loans. Some students can’t get rid of debt by declaring bankruptcy; sometimes even death can’t shake off student loan debt.

Lots of people are making the choice to go to community college for two years, transfer to a state school and not spend a lot of money in the process. This may not open the doors that an elite education would, but it levels the playing field. Obama and Clinton’s plan to eliminate tuition at community colleges will leave these students with even less debt. They will also encourage students to take advantage of this by emphasizing a junior transfer program, which would hopefully deal with the stigma around community colleges.

Student debt is hardest for people with low-paying public service jobs, despite their importance in our society. Student loan debt is also contributing to racial wealth disparities. For example, historically black colleges enroll students who are often low-income, first-generation college students. Despite the fact that tuition at historically black colleges is often much lower than at other private colleges, the colleges can’t afford to underwrite their students with grants and scholarships. As a result, the vast majority of their students borrow money, often extensively and expensively. Subsequently, many graduates of black colleges struggle to repay their loans, which exacerbates racial wealth imbalance.

Even if students can tolerate some debt, the ability to afford college does level the playing field. Nonetheless, it is the exclusive and expensive elite colleges that open doors to the top jobs — and salaries — in America, and most of those students come from families that can pay. For the students that can’t, the debt rises proportionally to the job. The graduate from Harvard will have $100,000 in debt but will garner a $200,000-a-year salary. This result is just as uncomfortable for that debtor as it is for the medical assistant who has only $28,000 in debt but whose salary is only $32,000 a year. See, for example, The Human Face of Student Debt.

The student loan debt crisis is a multifaceted problem, and as such it must have a multifaceted solution. One way to address the student loan debt crisis is to restructure loan repayment and the way we pay for college. This is the view of centrist democrats like President Obama and Hillary Clinton. This issue has become so significant and such a hot topic in the media and among presidential wannabes, it is inevitable that the student loan debt crisis will be addressed in the near future.

I strongly agree, if Community College is free then students who enroll to community college to Reduce their payment the would have time to save their money enough to pay for college after they make a transfer.

Yes, I also believe community college should be free. I also think that 4 year universities should decrease their cost as well. I’m still not completely sure why colleges are so expensive, but it’s a problem we should work to solve because having affordable education institutions will benefit our entire society and not just a select few like our current model.

This is a really good point. Also having more affordable higher education would benefit our economy because people graduating from college would have more disposable income, which could potentially help our economy grow.

I agree, but I think that it would be really interesting to look at the effect of having free community colleges (and maybe all public colleges) in private universities and colleges, would it make it more expensive? or cheaper?

Forgive debt after 20 years?!
So after I graduate from college, I’ll be 22-23 years old. And then I will forgive those debt completely until I’m 40s?!
It just makes people take their step back going to college when they think abut their tuition or even future.

We explored more of how to fix the student loan issues and not why college is so expensive. But one reason I found was that because state funding to Universities has declined so much tuition has to be raised.

I think your choice of case study was fascinating. And although most of the comments are focusing on making college free (a different narrative) I am curious why everyone would just not opt for the loan forgiveness option.